Osborne’s northern powerhouse puzzle grows

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Half of Britain's largest cities and towns suffer from low pay and high levels of welfare dependency according to new research, highlighting the challenge that George Osborne, chancellor, faces in delivering his promise to build a “high wage, low welfare” economy.

The phrase has become Mr Osborne’s mantra in the past year, used to sum up the Conservatives’ economic vision and priorities. He is using his second term in office to try to re-imagine the state: cutting spending at the centre while devolving more power to the regions.

But he faces a steep challenge: last month official statistics showed a growing north-south divide with the average economic value created by Londoners twice that of people in the north of England.

The latest figures reinforce the scale of the problem. Just 14 cities — almost all in the commuter belt around London — are “high wage, low welfare” economies, the study by Centre for Cities found.

By contrast, areas of low employment and relatively high welfare spending are clustered in the north, where Mr Osborne has been trying to create a “northern powerhouse”. His bid to boost the economy of the north of England aims to create a rival to London’s longstanding dominance.

The research, which looked at the economic performance of the 63 largest cities in Britain, suggests that the chancellor must contend with a feedback loop in which success brings more success: places with higher wages have seen faster jobs growth, the Centre for Cities found.

Economic success also brings a downside, however: the biggest growth in welfare spending has been in high-wage cities, particularly driven by spiralling housing costs.

Alexandra Jones, Centre for Cities’ chief executive, said the thinktank’s research “highlights the size of the challenge facing the government in building a high-wage, low-welfare economy”.

The biggest challenge facing struggling cities was a lack of skilled workers, she said. “Tackling skills gaps and improving school attainment” would “help those places attract businesses and jobs and support more people to move into work”.

The devolution of spending power over training and welfare to local authorities would help them improve people's job opportunities and pay, she added.

Cities could be allowed to keep any savings made by encouraging people to move off benefits, she suggested, which would “incentivise local leaders to invest in employment programmes”.

In a sign of the challenges that economic success brings, the Tory contender for London mayor said the cost of housing in the capital had become a “political and economic crisis”.

The success of incumbent Boris Johnson in luring foreign investment had created a “challenge” in the housing market, Mr Goldsmith told the BBC yesterday.

James Wharton, the minister responsible for the "northern powerhouse", said the government was making progress on its goals. Of the 2.3m net increase in jobs since 2010, two-thirds has been outside the south-east, he said. Wages for full-time workers are rising faster than the national average in regional hubs such as Manchester, Leeds and the Tees Valley, he added.

“The 'northern powerhouse' is about unlocking the potential of the economies of the north of England and presenting opportunities for companies to grow and compete more effectively in the global market,” Mr Wharton said. “We want to create further jobs through major investments in transport, science and innovation in order to make the North even more of a magnet for business and talent than it is today.”

A government spokesman said its efforts to increase employment and cut benefit spending across the country were beginning to have an effect. “But we are far from complacent and we continue to help local leaders boost their economies through ground-breaking devolution deals,” he said.

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